October 07, 2020
ICYMI: SUPERINTENDENT LINDA A. LACEWELL’S OP-ED IN THE NEW YORK DAILY NEWS: THE FEDS FAIL LOW-INCOME CONSUMERS AT THE WORST MOMENT
As New Yorkers and the rest of the nation grapple with the economic crisis caused by the COVID-19 pandemic, regulators must take action to protect consumers most vulnerable to financial distress. While many households in the nation are suffering setbacks, Black and Hispanic families have reported especially high levels of economic distress, reduced savings and difficulty in paying bills.
Now is the time for action in Washington to address the root causes of this distress. Instead, certain federal regulators are taking steps that could worsen the racial wealth gap and expose low-income and historically disadvantaged communities to predatory and discriminatory lending practices, leaving them further behind.
This is unacceptable. Our country cannot fully recover or rebuild until we commit to using financial regulation as an essential tool to advance racial and economic justice for all. The federal government’s failure on this point is concerningly clear when looking at the recent actions of the Office of the Comptroller of the Currency (OCC).
The OCC, charged with regulating and overseeing national banks, has issued proposals to expand its authority to oversee non-bank lenders, enabling them to evade state interest rate caps. These steps ignore the history of high-interest, predatory lending in minority communities and are likely to widen the racial wealth gap rather than narrow it. Although the OCC cites “access to credit” to justify its actions, its proposed rules will only serve to allow harmful types of credit into neighborhoods most in need of relief.
This July, the OCC proposed a “true lender” rule that would permit so-called “rent-a-bank” schemes — arrangements that would allow non-bank lenders to make triple-digit interest rate loans to individuals and small businesses by running the loans through bank “partners” in other states that are not subject to our interest rate caps.
These high-interest loans are illegal in New York, which caps annual interest rates for most consumer loans by unregulated lenders at 16% and at 25% if the lender is licensed. By looking at states where triple-digit interest rate loans are currently legal, we know that Black and Hispanic communities are often targeted, trapping households in cycles of debt, ultimately extracting wealth from vulnerable communities.
This proposal would expose New Yorkers — particularly those most in need — to predatory lending from anywhere in the country by flouting our state laws that protect against exactly this conduct. Banks would have the same perverse incentives to make the types of high-cost loans that resulted in the financial crisis over a decade ago. Even worse, the OCC would allow non-banks to engage in this same predatory lending, too.
The OCC is also hammering away at the core purpose of the Community Reinvestment Act (CRA), which was designed and intended to remedy discrimination and lack of access to credit in vulnerable communities. The OCC finalized a new rule in May that makes it easier for banks to get a favorable CRA rating by making investments in communities where they can reap the largest rewards while leaving too many credit needs unmet for underserved consumers and neighborhoods.
As the superintendent of the New York State Department of Financial Services, I have called on the OCC to stop enabling predatory and discriminatory practices. My office opposed the OCC’s proposed true lender rule in an official comment letter, and as we oversee New York’s own CRA law, we are committed to strengthening and enforcing it to meet the needs of the communities it is intended to serve.
What vulnerable communities need now is coordination by regulators about how to invest in and protect them. Financial regulation should take into account past crises and proven consumer protections instead of ignoring them.
I urge the federal government to join states in fighting predatory lending and focusing on creating wealth in communities that have historically been underserved or outright excluded by the financial system. With the conjoined crises in public health, the economy, and racial justice, we cannot afford to repeat history. Unfortunately, the OCC is doing just that by opening the door to wolves in sheep’s clothing.
Lacewell is superintendent of New York’s Department of Financial Services.